Role of stock exchange

The following are a few of the most significant tasks carried out by the stock
exchange:

Role of an Economic Barometer - The stock market plays the role of an economic
barometer, providing information on the health of the economy. It keeps track of all
significant and minor changes in share prices. It is correctly referred to as the
economy's pulse since it shows how the economy is performing.

Securities valuation: Using supply and demand parameters, the stock market
assists in the valuing of securities. Companies that are prosperous and focused on
expansion generally charge more for the securities they supply. The valuation of
securities helps the government, investors, and creditors in carrying out their
respective duties.

Transactional Safety: Transactional safety is guaranteed by the listing of the

securities that are traded on the stock market, which is done after checking the
company's financial status. All companies that are listed are required to follow the
guidelines established by the regulatory body.

Contributor to Economic Growth: stock exchanges provide a platform for buying

and selling shares from several firms, which contributes to economic growth.
Continuous disinvestment and reinvestment are a part of the trade process, which
presents prospects for capital development and, as a result, economic expansion.

Public education about equity investment: Stock exchanges assist in educating

the public about equity investment and by rolling out new securities to better cater
to invest in securities.

Allows for healthy speculation of traded securities: The stock exchange assures
demand and supply of securities, as well as liquidity, by allowing for healthy
speculation of traded securities.

Facilitates liquidity: The stock exchange's primary responsibility is to provide a

convenient marketplace for the selling and purchase of securities. In other words,
stock market offers liquidity in terms of investment, giving investors the assurance
that their current holdings may be turned into cash.

More effective capital allocation: Profitable companies will have active share
trading, which enables them to raise additional funds from the equity market. For
investors, the stock market facilitates better capital allocation in order to maximize
profit.

Encourages saving and investment: The stock market is a key source for investing
in a variety of assets that have higher yields. Stock market investments are
preferable to gold as investment choices.

Lesson: Investors, Traders and listed Companies

There are several different sorts of investors that focus their investments and
services on only one financial channel. An investor is first classified into two types:
active and passive.

Active Investor: An investor that actively seeks for incredible investment

possibilities and has integrated investing into their daily lives is referred to be an
active investor. Investors that aim to buy stocks with low share prices compared to
their book values are an example of taking an active strategy. Others may want to
make long-term investments in "growth" stocks, which may be losing money right
now but have great potential in the future.

Passive Investor: A passive investor, on the other hand, is an investor who makes
long-term investments that can have low initial value but have high future value
potential and can serve as an amazing investment opportunity if you are ready to
wait a long time. This group commonly involves investors such as mutual fund
investors and real estate investors.

Active investment techniques are losing ground to passive (indexed) investing as

the principle driving the stock market. Part of the reason for this popularity boom is
the expansion of low-cost target-date mutual funds, exchange-traded funds, and
robo-advisors.

Different types of investors based on different types of risk

Investors who are cautious or risk-averse

These investors avoid taking risks. They choose to face comparatively less risks.
They are satisfied with the significantly lower returns for the relatively lower risk.
These investors have low tolerances for risk. They do not want to lose money on
their investments, even if it is for a short time. Short-term fixed deposits, long-term
fixed deposits, and debt instruments directly or through debt mutual funds are
examples of investments for risk-averse investors.
Investors that are risk-neutral or moderate risk taker

These investors have a moderate level of willingness to take risks and a moderate
level of risk tolerance. They are prepared to take some losses on their investments.
They also have a reasonable anticipation of benefits. For the possibility of greater
benefits in the long run, they are willing to accept minor losses in the short to
medium term.

Examples of investments for risk-averse investors include a mix of short- and long-
term fixed deposits, debt instruments directly or through debt mutual funds, and
stocks directly or through an equity mutual fund. Equity and debt are both
investments in balanced mutual funds. Multi-asset mutual funds make investments
in commodities, stocks, and debt. These mutual funds are also good examples of
investments for risk neutral investors.

Aggressive, risk-loving, or risk-seeking investors

These investors deliberately seek out fairly high risks. These risk takers anticipate
significantly higher benefits in exchange for taking on such a high level of risk. They
also have a high propensity for risk as well as a high-risk tolerance. They are willing
to accept short- to medium-term losses in exchange for possible long-term
rewards. Equities, either directly or through an equity mutual fund, and equity
derivatives like futures and options are examples of investments for risk-taking
investors.

On the basis of duration

Short-term investors - Investors that invest in financial assets with a one-year or

shorter time scale in mind are said to be short-term investors. Ultra-short-term
bonds with maturities of less than a year, capital or convertible notes, investments
in money markets (such as buying and selling currencies), etc. are examples of
short-term investment instruments.

Long-term investors - On the other hand, long-term investors are those that invest
in long-term financial instruments and keep them for a duration of more than a
year. Long-term investors want to keep their investment instruments, such stocks,
bonds, or derivative contracts, for a long time.

Angel investors
A high-net-worth private individual who invests in startups or entrepreneurs is
known as an angel investor. The money is often given in return for a corporate
share interest. Angel investors are able to provide a one-time or continuous
financial contribution. An angel investor often contributes money to a startup
company when the risk is greatest. They often invest surplus cash they have on
hand in high-risk ventures.

Peer-to-Peer Lenders

Peer-to-peer lending, often known as P2P lending, is a type of financing in which

borrowers forego the traditional middleman—such as a bank—and instead get
loans directly from one another.

P2P lenders are individuals or groups of individuals that invest money to provide
small enterprises an opportunity to sell their goods and services in the financial
sector. These lenders are experts in this area of lending, therefore a company must
approach them on its own if it wants financial assistance. These financiers directly
support the endeavors of small firms and buy their shares if they like the company
idea and believe it has future. P2P lending examples include crowdsourcing, in
which companies look to raise money from several investors online in exchange for
goods or other benefit.

Personal Investors

Any individual that invests on their own is considered to be a personal investor. An

individual investor puts their own money to work by purchasing stocks, bonds,
mutual funds, and exchange-traded funds (ETFs). Personal investors aren't experts;
rather, they're people looking for better returns than can be found in basic
investing instruments like savings accounts or certificates of deposit.

Venture Capitalists

Private equity investors that aim to invest in start-ups and other small firms are
known as venture capitalists. These investors usually take the shape of a company.
In contrast to angel investors, they look at companies that are already in the early
stages and have the potential to expand rather than trying to fund startups to help
them start their businesses from ground.

These are businesses that commonly want to grow but lack the resources to do so.
As compensation for their investment, venture capitalists look for an ownership
position in the firm, support its expansion, and then sell their share for a profit.
Institutional investors

Organizations that invest other people's money are considered institutional

investors. Mutual funds, ETFs, HFTs, and pension funds are a few examples of
institutional investors. Institutional investors are able to buy enormous quantities
of assets, often large blocks of stocks, because they raise significant sums of funds
from a large number of individuals. Institutional investors have a variety of
techniques to affect asset prices.

LESSON: Market Intermediaries

Stock Broker

A stockbroker, by definition, is a middleman with the legal right to transact in

securities on behalf of investors on a stock exchange. In order to purchase or sell
stocks through exchanges, which serve as a platform for the investor to enter and
transact in securities, the investor seeks the help of a broker because it is difficult
for him to transact directly on the stock exchange.

The majority of the time, stockbrokers are employed by a stockbroking company,

but they can also operate independently and demand a specific level of
compensation in return. In other terms, a stockbroker is a person in charge of the
commission who performs trading services on behalf of his customer and aids the
investor in making a more informed choice.

Role of Stock Broker in Stock Market

The functions and responsibilities of a broker are as follows:

(a) Consultative Services - In general, brokers inform and assist their customers to
make trading decisions about the purchasing or selling of stocks since they stay
current on market conditions and could thus suggest stocks/securities for better
earnings.

(b) Manage the Trading Platform and Related Paperwork - Stockbrokers enable
trading on behalf of their clients, as well as complete related tasks, keep track of all
transactions and statements, and manage related paperwork.

(c) Managing Client Portfolios – Brokers manage the portfolios of their clients and
inform them of any changes. Additionally, they answer consumer questions about
investments.
Responsibilities of A Stock Broker To its Clients

The stock broker must provide the client with the appropriate protection with
regard to the client's rights to dividends, rights, bonus shares, etc. in regard to
transactions routed through it and must not take any action that is likely to harm
the interests of the client with whom or for whom they may have engaged in
securities transactions.

The stock broker and the customer are required to periodically reconcile and settle
their accounts in accordance with the Rules, Regulations, Bye Laws, Circulars,
Notices, and Guidelines published by SEBI and the applicable Exchanges where the
deal is performed.

The stock broker shall issue to his constituents a contract note for trades
conducted in such format as may be defined by the Exchange from time to time,
comprising records of all transactions including information of order number, trade
number, trade time, trade price, trade quantity, details of the derivatives contract,
client code, brokerage, all charges imposed, and all other relevant details as needed
therein to be filled in and issued in such way and therewith. Within one working day
of the trades being executed, the stock broker must deliver contract notes to the
investors in paper copy or electronically using a digital signature.

Unless the client specifies otherwise and subject to any terms and conditions that
may be set forth by the relevant Exchange where the trade is executed from time to
time, the stock broker shall make payment out of funds or delivery of securities, as
the case may be, to the Client within one working day of receipt of the payout from
the relevant Exchange where the trade is executed.

The stock broker is required to provide each of its clients a full "Statement of
Accounts" for both money and securities in the regularity and format as may be
from time to time defined by the relevant Exchange where the deal is completed.
The Statement must further specify that the customer must notify the stock broker
of any mistakes in the Statement within the time frame that may be established by
the relevant Exchange from time to time, depending on where the deal was
performed.